Prevailing Party Attorneys’ Fees Through Indemnity Provisions

Usually, before filing a lawsuit in a business dispute, a client wants to know whether she can receive her attorneys’ fees as a prevailing party in litigation. For the most part, it is an easy question–check the contract for a prevailing party attorney fee provision. However, sometimes contracts lack such provisions, but that does not mean the client is out of luck. Indemnity provisions may allow the client to recover prevailing party attorneys’ fees.

I. What is indemnification?

Generally, indemnification requires Party 1 to pay Party 2 for any obligation Party 2 paid because of Party 1’s conduct. For example, Party 1 does an act against Party 3, where Party 3 then sues Party 2. Party 2 may have a claim against Party 1 for indemnification. Such a situation may occur when an independent contractor harms a customer, and the customer sues the company. Indemnification may arise from contract, or other equitable means.

As this example shows, indemnification may arise when a third-party is involved. But, what about claims between Party 1 and Party 2? Indemnification is not limited to only third-party claims, depending on the indemnity provision’s scope. And that scope determines whether your client may obtain prevailing party attorneys’ fees.

II. Obtaining prevailing party attorneys’ fees through indemnification provision

Generally, an indemnification provision allows one party to recover costs incurred defending actions by third parties, not attorney fees incurred in an action between the parties to the contract. For example, let’s say an indemnification provision states “Seller … agrees to indemnify and save [b]uyer … harmless from any and all losses … including … reasonable attorney’s fees … arising from any cause or for any reason whatsoever.” Courts hold that such language does not permit parties to the contract to recover prevailing party attorneys’ fees. However, other language may exist that would show prevailing party attorneys’ fees are recoverable from an indemnity provision between parties to the contract:

Where one party agreed to indemnify the other for losses “ ‘whether or not they have arisen from or were incurred in or as a result of any demand, claim, action, suit, assessment or other proceeding or any settlement or judgment….’ ”

Where the contract provided indemnity against all losses “ ‘whether or not arising out of third party Claims.’ ”

The indemnity provision specifically applied to an “ ‘action or suit by or in the right of the corporation to procure a judgment in its favor.’ ”

There is no one set method for obtaining prevailing party attorneys’ fees through indemnification provisions. But, knowing that indemnification provisions may also provide for prevailing party attorneys’ fees can assist in your decision making in whether or not to file a lawsuit.